ZTE says its equipment is safe, poses no threat to U.S. national security

We reported yesterday on a U.S. Congressional report suggesting that ZTE and Huawei should be blocked from operating within the U.S. for national security reasons. The report singled out both companies with allegations of corruption, bribery and possible influence by the Chinese government. Hot off the press this morning ZTE has hit back with a statement in its defense.

In its statement, ZTE notes its status as a "Trusted Delivery Partner" for 140 other governments, and says it's "China’s most transparent, independent, globally focused, publicly traded telecom company." The company also points out that the vast majority of U.S. telecommunications equipment currently in use is manufactured in China.

We expect this one to go back and forth before any final outcome is reached. For ZTE's full statement, check past the break. To read more about exactly what they and Huawei are alleged to have done, see our report from yesterday.

WASHINGTON, D.C. – October 9, 2012 – ZTE today reiterated its support for its Trusted Delivery Model and renewed its commitment to work with the House Permanent Select Committee on Intelligence (Committee), government agencies, and the private sector to address all cyber security concerns.

ZTE has set an unprecedented standard for cooperation by any Chinese company with a US congressional inquiry. ZTE has presented the Committee with ample facts that demonstrate ZTE is China’s most transparent, independent, globally focused, publicly traded telecom company. ZTE is listed on the Hong Kong and Shenzhen Stock Exchanges. The company already is recognised as a Trusted Delivery Partner by 140 governments and 500 network carriers.

ZTE’s equipment is safe for US telecom infrastructure. In its Fourth Recommendation, the Committee encourages companies to offer “more consistent review by independent third-party evaluators of their cyber security processes.” The Committee has credited ZTE with advocating a solution, based on a Trusted Delivery Model, in which the telecom vendor transfers hardware, software, firmware, and other structural equipment elements to an independent third-party threat assessment laboratory with US government agency oversight.

The Committee has raised technical questions regarding the effectiveness of Trusted Delivery Systems, but the Committee recommends continuing efforts to identify effective mitigation solutions. David Dai Shu, ZTE’s director of global public affairs, said “ZTE appreciates the Committee’s recognition that ZTE has offered US carriers a Trusted Delivery Model solution. ZTE will work with the Committee, US government agencies, and ZTE’s US customers to identify and deploy the most effective equipment cyber-security measures possible. ZTE is committed to assuring US carriers and US government agencies its equipment is safe.”

Dai Shu said, “It is noteworthy that, after a year-long investigation, the Committee rests its conclusions on a finding that ZTE may not be ‘free of state influence.’ This finding would apply to any company operating in China. The Committee has not challenged ZTE’s fitness to serve the US market based on any pattern of unethical or illegal behavior.”

According to the Committee, ZTE was included in this investigation simply because it is one of “the top two Chinese telecommunications equipment manufacturers.” Virtually all of the telecom infrastructure equipment now sold in the US and throughout the world contains components made, in whole or in part, in China. That includes the equipment manufactured and sold by every Western vendor in the United States, much of which is made by Chinese joint venture partners and suppliers.

Dai Shu said, “Particularly given the severity of the Committee’s recommendations, ZTE recommends that the Committee’s investigation be extended to include every company making equipment in China, including the Western vendors. That is the only way to truly protect US equipment and US national security. National security experts agree that a Trusted Delivery Model will strengthen national security. In fact, major US carriers are increasingly requiring Trusted Delivery Model in their contracts.”

ZTE has presented the Committee with the following facts:

· ZTE is China’s most transparent, independent, globally focused, publicly traded telecom company. Every business decision and action taken within ZTE serves the Company’s 140,000 public shareholders on the Shenzhen and Hong Kong Stock Exchanges, including many of the world’s leading institutional investors. As ZTE’s Independent Director, an American citizen, has confirmed in a sworn affidavit: ZTE’s business decisions and actions are not directed or influenced by China’s government.

· ZTE has an unbroken history as a commercial telecom technology innovator for three decades. The company is a leader in international equipment standards-setting organisations, and it is recognised as a Trusted Delivery partner by over 500 network carriers in 140 countries. ZTE was the pioneer among Chinese companies entering into technology licensing agreements with US suppliers, with its first licensing agreement with Qualcomm in 1999. In recent years, ZTE has spent over $14 billion on US chip sets and other US equipment, and has created over 20,000 direct and indirect US jobs. ZTE will continue as a major customer of US telecom equipment suppliers for years to come.

· To assure US supply chain security, ZTE offers US carriers its Trusted Delivery Model, a fully transparent and comprehensive review and monitoring system conducted by a highly respected independent US threat assessment laboratory. ZTE’s Trusted Delivery Model provides for a thorough end-to-end security evaluation of ZTE’s software, firmware and hardware throughout the equipment life cycle. The Trusted Delivery Model also makes audits available for US Government agency review to facilitate additional assurance and oversight.

· Given ZTE’s cooperation and the facts ZTE has presented to the Committee, ZTE is disappointed that the Committee chose to narrowly focus its review on just the two largest Chinese companies and to exclude Western telecom vendors and their Chinese joint venture partners. Given that virtually all US telecom equipment is produced in China, in some measure, the Committee’s narrow focus addresses the overall issue of risk to US telecom infrastructure so narrowly that it omits from the Committee’s inquiry the suppliers of the vast majority of equipment used in the US market. ZTE is a relatively small US telecom infrastructure equipment supplier in comparison with most of the Western vendors. Sales of ZTE’s telecom infrastructure equipment in the US comprised less than $30 million in revenue last year. Two Western vendors, alone, last year provided the US market with $14 billion worth of equipment.

· US carriers and the US Government have come to rely upon the Trusted Delivery Model as the best protection for telecom infrastructure equipment. A Trusted Delivery Model is vendor-neutral. US carriers can trust the equipment and that is the best protection of US national security.

“ZTE recognises and fully respects the Committee’s obligation to protect US national security,” said Dai Shu. “ZTE believes the Committee focused its examination too narrowly on vendor locations not on equipment security. The Committee omitted the Western vendors and their Chinese manufacturing partners, which provide most of the US equipment now in use. The Committee also overlooked the opportunity to advance universal application of the Trusted Delivery Model which protects critical telecom networks on a vendor-neutral basis.”